Lawsuit Challenging Obamacare Subsidies in States With Own Exchanges in Federal Court

Halbig v. Sebelius


The Affordable Care Act faced another legal challenge Tuesday in federal court, as a group of business owners and individuals pushed back against an IRS regulation they say is both unlawful and potentially crippling.

The regulation, which stems from the ACA, defines which applicants are eligible for subsidies in connection with obtaining health care coverage. It's a significant distinction, because those subsidies trigger massive employer and individual obligations in the states where they are awarded.

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  1. Look for Friday afternoon Special Dispensation soon.

  2. The clause in question in the ACA Law is

    exchanges “established by the state”

    The IRS has rewritten the ACA Law to establish the “United States” as “the State” so the Federally established exchange can be included in the individual State established exchange “subsidy program” written in the Law. There is no mention of a Federal exchange subsidy program in the ACA.

    I would argue the IRS has NO right to make this change and the Federally established exchanges should NOT be included in the subsidy program based on the language of the ACA Law. There is clearly a differential use of “state exchange” vs “federal exchange” in the language of the ACA Law. The IRS cannot unilaterally use the two different terms interchangeably WITHOUT Congressional authorization.

  3. An argument regarding the challenge to the IRS’s change to the law:
    “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA”

    The Patient Protection and Affordable Care Act (PPACA) provides tax credits and subsidies for the purchase of qualifying health insurance plans on state-run insurance exchanges. Contrary to expectations, many states are refusing or otherwise failing to create such exchanges. An Internal Revenue Service (IRS) rule purports to extend these tax credits and subsidies to the purchase of health insurance in federal exchanges created in states without exchanges of their own. This rule lacks statutory authority. The text, structure, and history of the Act show that tax credits and subsidies are not available in federally run exchanges. The IRS rule is contrary to congressional intent and cannot be justified on other legal grounds. Because the granting of tax credits can trigger the imposition of fines on millions of individuals and employers, the IRS rule is likely to be challenged in court.


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